I guess we should add Berkshire Hathaway (BRK.A) to the list of earnings performers as they made $35.91Bn in Q2 (more than AAPL!) after losing $43.62Bn last year at this time. Berkshire now has $147.4Bn in CASH!!! That’s up $17Bn since Q1.
As we’ve expected but haven’t seen from other Insurance Companies (a big part of Berkshire) – they had a huge jump in Underwriting and Investment Income thanks to the higher rates. This means we should take a closer look at the Insurance Companies on our Watch List.
Allstate (ALL) is running out the clock on another negative year ($414M loss projected). ALL has been aggressive in pushing for higher rates and has been granted increases in 27 states but it takes time for the revenues to show up on the balance sheet so there is nothing unbelievable about their $3.3Bn earning target for 2024, which makes them a bargain at $110 ($28.75Bn). We’ve been watching is since November at $130 so $110 is a good place to put it on our Long-Term Portfolio (LTP):
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- Sell 10 ALL Dec 2024 $100 puts for $8 ($8,000)
- Buy 20 ALL Dec 2024 $100 calls for $20 ($40,000)
- Sell 20 ALL Dec 2024 $110 calls for $14.20 ($28,400)
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That’s net $3,600 on the $20,000 spread with $16,400 (455%) upside potential at just $110 in about 17 months. Our worst case is being assigned 2,000 shares of ALL at net $101.80, which would be 7.5% below the current price. Realistically though, if we should face danger of assignment, we would roll the puts lower before buying.
Prudential options go all the way out to Dec 2025 and the stock is a little cheaper at $96.50 but that’s $35Bn in market cap and they are making $4.4Bn this year, which puts their p/e way down below 8x.
